Pent-up deal activity, strong demand to drive M&A in 2013

07 November 2012 16:58  [Source: ICIS news]

NEW YORK (ICIS)--More chemical assets on the selling block and strong demand from both corporate and private equity buyers will drive higher levels of mergers and acquisitions (M&A) activity in 2013, one banker said on Wednesday.

“We see 2013 as a growth year for chemical M&A, as more assets hit the market from corporate divestiture programs, and both corporates and private equity firms seek to put cash to work,” said Mario Toukan, head of the chemicals practice at US investment bank KeyBanc Capital Markets.

“A lot of activity that was supposed to happen in 2012 never came about because of macroeconomic conditions, Europe and the US elections. People held tight, and the supply never hit the market,” he added.

In the first half of 2012, deal activity fell sharply in terms of dollar volume, as few multi-billion-dollar deals were completed, said Toukan.

The number of US deals also fell in the first half, with just 40 completed – 21 in the first quarter and 19 in the second.

The first half total was lower than the 45 deals completed in just the first quarter of 2011. Activity picked up in the third quarter, with 28 deals closed, he pointed out.

But much of the pent-up supply will hit the market in 2013 at a time when demand will be strong for quality chemical assets, noted the banker.

“Corporate cash balances are very high – in many cases over 10% of market capitalisation. For these companies, the number one priority is to make strategic deals,” said Toukan.

The average enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple on the last 45 chemical deals analysed was 9.5 times for strategic buyers versus 8.0 times for financial buyers, noted the banker.

On the sell side, more assets will hit the block in 2013 from companies as they digest several multi-billion-dollar deals completed in 2011, he said.

“Mega deals always result in non-core assets to be divested. A large number of these deals occurred over the past 12-24 months, and it often takes one to two years to sort things through,” Toukan said.

Historically, corporate divestitures have represented a meaningful portion of M&A activity in chemicals, but this has been lacking in the past two years, he noted.

Private equity firms will also be active buyers and sellers of chemical assets in 2013, said the banker.

“Private equity funds are also sitting on a lot of cash, and right now, the financing market is wide open,” Toukan said.

Another result of the strong financing market is that companies have been refinancing debt for lower rates, better terms and more financial flexibility to make acquisitions.

“There are so many refinancings taking place that this can only drive more deals,” he said.

($1 = €0.78)


By: Joseph Chang
+1 713 525 2653



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